8 Acquisition Financing Options For Badass Business Deals

Financing a business merger or acquisition is an exciting step in your investor journey, but it can be quite the hassle if you go into it blind.

The acquisition process begins by understanding your acquisition financing options. Each method has its risks, advantages and implications for your business growth.

In this article, you’ll find the best financing options for your business acquisition, and how to choose the one that will work for your purposes.

8 Business Acquisition Financing Options

  1. Bootstrapping
  2. Bank Loans
  3. Small Business Administration (SBA) Loans
  4. Acquisition equity finance partners
  5. Private Equity Firms
  6. Joint Ventures
  7. Seller Financing
  8. Mezzanine Financing

Different acquisition funding deals require different financing methods.

Research each option thoroughly. Choose the one that best fits your needs and risk tolerance.


Bootstrapping is when you use savings or profits from your business to fund an acquisition.

While very few companies have the cash on hand to acquire another business, it does offer key advantages when possible. You avoid debt and interest payments, and you don’t have to worry about meeting loan repayments or diluting ownership by bringing in investors.

Unfortunately, growth can be slower and all financial risks are on you, which can be stressful.

To successfully use bootstrapping for acquisition financing, you need to:

  • Thoroughly understand your finances.
  • Operate lean and cut unnecessary costs.
  • Prioritize spending that drives growth and stability.

Because bootstrapping is usually impractical, most acquisitions are done through leveraged buyouts, meaning the use of debt financing.

Bank Loans

Bank loans provide a straightforward way to finance a business acquisition. The amount you can borrow, the interest rate, and the repayment terms are typically based on your company’s credit history and the perceived risk of the transaction.

The main advantage of using a bank loan is that it provides immediate capital to make the leveraged buyout. It allows businesses to leverage external funds, potentially enabling them to undertake larger acquisitions than might be possible using only internal funds.

Bank loans are considered senior debt, and repayments can impact the company’s cash flow and financial stability.

To increase your chances of getting a bank loan for business acquisition financing, you need to:

  • Prepare a robust business plan that clearly outlines your acquisition strategy, financial projections, and how the loan will be utilized to enhance growth.
  • Build a strong credit history, as lenders will assess your creditworthiness when considering loan approval.
  • Be prepared to offer collateral to secure the loan and demonstrate to lenders your commitment and confidence in your acquisition plan.

Small Business Administration (SBA) Loans

Small Business Administration (SBA) loans offer a viable financing option for entrepreneurs looking to acquire a business. SBA acquisition loans are partially guaranteed by the U.S. government, which often makes them more accessible to businesses that might struggle to secure traditional bank financing.

The primary advantage of using SBA for acquisition loans is their relatively low interest rates and favorable repayment terms, making them an attractive option for small business owners. They are designed to be somewhat more accessible, providing financial support to businesses that might be deemed too risky by conventional lending standards.

SBA funding comes with a set of challenges as well.

The application process can be rigorous and time-consuming. It requires businesses to provide a detailed business plan, financial statements, and additional documentation to demonstrate their creditworthiness. SBA loans often require collateral, which can pose a risk to the borrower’s assets.

Another challenge is insufficient funding, even if you do get SBA backing. This is where SBA loan investors can help to bridge that funding gap.

To increase your chances of getting an SBA loan for business acquisition financing, you need to:

  • Make sure you have all required documents prepared. This includes financial statements, business plans, and legal documents.
  • Confirm that your business meets the SBA’s eligibility requirements.
  • Make sure your plan for a leveraged buyout agrees is within the SBA’s permissible uses.

Acquisition Equity Financing Partners

Acquisition equity finance company

A acquisition equity finance company is generally a individual, fund, or company that partners with those looking to buy an existing business.

They aim to inject capital into the deal to help the entrepreneur acquire the business.

For example, Smash Ventures is just such a company. They partner with entrepreneurs that are looking to acquire an SMB, such as those using an SBA loan but still need more capital, or with more traditional self-financed search funds.

Post-acquisition, Smash does two things:

  1. It gives the option (but not the requirement) to have its in-house marketing agency help grow its portfolio companies.
  2. Smash aligns itself with the entrepreneurs it partners with by being “exit agnostic”. Since it’s not a fund, it doesn’t have deadlines for closing out the fund. It is just as happy being a shareholder in a company forever as it is having the company flipped in 5 years.

It supports the entrepreneur either way.

Private Equity Firms

Private equity firms provide capital in exchange for equity, or ownership stake. They typically invest in established businesses that have stable revenue and profit. They often have the aim of increasing the value of the business for an eventual exit, typically through a sale or an IPO (Initial Public Offering).

One of the primary advantages of partnering with a private equity firm is the substantial financial backing they bring. For example, Apollo Global Management holds $598 billion in managed funds. Additionally, they often bring a wealth of experience and can provide strategic guidance that can help drive growth and operational improvements in the business.

It’s important to note that unless you’re already a big established player, PE firms are probably not going to be interested. Private equity is NOT a group of small business investors. There are some Micro-PE players that will work with smaller acquisitions, but the big guys are in an entirely different league.

Note that accepting investment from a private equity firm means relinquishing some level of ownership and control over the business. They seek to maximize their return on investment, which may radically influence the strategic direction and operations of the business.

To get business acquisition financing from a private equity firm, you need to:

  • Make sure your business goals and operational philosophies align with those of the private equity firm.
  • Present clear, accurate, and transparent financial statements and projections.
  • Develop a clear exit strategy that aligns with the investment horizon of the private equity firm.

Joint Ventures or Partnerships

A joint partnership is when two or more businesses combine resources, expertise, and capital to acquire and manage a target business together.

A significant advantage of joint partnerships is the shared risk and responsibility. Each entity contributes to the financing, resources, and management of the acquisition, thereby reducing the financial burden on a single entity.

This collaborative approach can also bring together varied expertise and market insights, potentially leading to more informed decision-making and strategic development.

Joint partnerships can open access to new markets, networks, and operational capabilities, as each partner brings their own strengths and resources to the table.

On the other hand, it requires similar strategic vision and operational practices among all partners.

To succeed in acquisition financing through joint partnerships, you need to:

  • Ensure clear agreement on objectives, financial contributions, roles, and responsibilities among all partners to avoid future conflicts.
  • Establish robust communication channels and decision-making protocols to facilitate smooth operation of the partnership.
  • Develop a comprehensive legal and operational framework that outlines the structure of the partnership, distribution of profits, and procedures for resolving disputes or exiting the partnership.

Seller Financing

Seller financing is when the person selling their business also helps out with the funding. They exchange their business for an “IOU” and you agree to pay them back in installments.

The cool thing about seller financing is that it’s often simpler and more flexible than dealing with a bank. You might get better interest rates and payment plans, and you don’t have to deal with all the bank’s paperwork and requirements.

For the seller, they might be able to sell the business for a bit more money. They also earn a little extra from the interest you pay them back over time. And, they might be able to sell faster because they’re not waiting around for a bank to say yes to a loan.

But it’s not all smooth sailing, especially for the seller. If you can’t make payments, you might have to give back parts of or the entire the business, depending on your contract.

If you’re considering seller financing for acquisition financing:

  • Do your due diligence on the target company to make sure it will provide enough cash flow for repayments.
  • Draw up a loan agreement with everything clear and above board.
  • Work out a payment plan that’s fair and doable, making sure it lines up with the expected income from the business.

Mezzanine Debt Financing

Mezzanine debt financing, or subordinate financing, is a leveraged buyout using both debt and equity financing that’s used often for business acquisitions. It is unsecured and tied to the assets of the company, which means higher interest rates and increased risk to the lender.

The neat part about mezzanine financing is that it can give you that extra financial push to make the acquisition happen when you’re a bit short on capital. It’s flexible too – if you hit a rough patch, sometimes you can convert that debt into ownership or equity to the lender, which eases the pressure of repayments.

But on the flipside, mezzanine debt can be costly. If things go sideways, you might end up giving away a chunk of your business to the lender.

Plus, if you have other loans, adding mezzanine debt means you’re juggling more balls. And if one drops, it can get messy.

If you’re thinking about using mezzanine debt financing for acquisition financing:

  • Be sure you’ve got a solid plan for how you’ll use the money to grow the business and pay back the loan.
  • Get some expert advice to navigate through the process and make sure all the legal and financial boxes are ticked.
  • Make sure you’re comfortable with the terms and understand the risks, like potentially losing a piece of your business if things don’t go as planned.

Evaluating Risks In Acquisition Finance

Risk is inherent in acquisition finance. But with thorough evaluation and planning, you can minimize it.

Risks of Debt Acquisition Financing

First, let’s look at the potential risks of debt financing acquisitions.

Repayment Pressure

With debt acquisition funding, there’s the constant obligation to meet repayment schedules. This means your business needs to generate enough revenue to cover repayments to acquisition financing lenders.

It can be particularly stressful if cash flow becomes tight or the business faces unforeseen challenges.

Collateral Risk

Often, debt financing requires collateral, such as business assets, to secure the loan. If the business struggles to make repayments, these assets could be at risk. This might jeopardize the operational capability and financial stability of the business.

Impact on Credit Rating

Taking on debt impacts your business’s credit rating. If the business encounters any issues and fails to meet repayment obligations, it can negatively affect the credit rating. This can make it harder and potentially more expensive to secure financing in the future.

Risks of Equity Acquisition Financing

Now, let’s look at the risks of equity financing an acquisition.

Loss of Control

Opting for equity acquisition financing often means selling a portion of your business to investors. This can dilute your ownership and potentially reduce your control over business decisions, strategy, and operations, as investors will likely want a say in how the business is run.

Dividend Obligations

Equity investors may expect to receive dividends as a return on their investment. This means that a portion of your profits will be distributed to investors, which might otherwise be reinvested back into the business, potentially impacting cash flow and growth plans.

Potential Conflict with Investors

Different investors may have varied expectations and visions for the business. Managing these diverse perspectives and ensuring alignment can be challenging and, if not managed effectively, can lead to conflicts that disrupt the smooth operation and strategic direction of the business.

How to Write Your Business Acquisition Plan

Now that you know all the pieces of the puzzle, it’s time to put them in order. A carefully crafted business acquisition plan will ensure a smooth transition and successful outcome.

Here’s a straightforward guide to help you write a simple but effective business acquisition plan.

1. Define Clear Objectives

Start by outlining the reason why you want to acquire the business. Sounds simple enough, but it’s easy to get lost in the weeds during the whole process. Some common reasons and goals are:

  • Access a new market
  • Acquire technology
  • Eliminate competition
  • Etc…

2. Identify the Target Company

Detail the criteria for your ideal target business, considering aspects like size, industry, location, and financial health.

This will streamline your search and help you focus on businesses that align with your objectives.

3. Conduct Thorough Due Diligence

Once you’ve found a potential target company, it’s time for due diligence. Dive deep into the financials, operations, legalities, and other relevant aspects of the target business. Ensure there are no hidden liabilities or issues that could pose challenges post-acquisition. Here’s a great guide on performing due diligence on online businesses.

4. Financing Strategy

Based on the insights from the previous sections about different financing options, choose a financing strategy that aligns with your financial capacity and strategy. Detail how you plan to fund the acquisition, whether through debt, equity, or alternative financing options.

5. Valuation and Offer

Establish the value of the target business and determine a fair offer price. Consider various valuation methods and ensure that the price aligns with both the business’s worth and your financial strategy.

6. Negotiation and Deal Structure

Outline your negotiation strategy and define the structure of the deal. Consider aspects like payment terms, transition period, and any contingencies that need to be addressed.

7. Integration Plan

Describe how you plan to integrate the acquired business into your existing operations. Consider cultural, operational, and technological aspects to ensure a smooth transition and compatibility between the businesses and people within.

8. Risk Management

Identify potential risks and challenges that might arise during and after the acquisition. Develop strategies to mitigate these risks and ensure that the acquisition remains aligned with your overall business objectives. You can also consult a third party company for assistance in risk management.

9. Legal and Regulatory Compliance

Ensure that the acquisition plan adheres to all legal and regulatory requirements. Engage legal counsel to navigate through contracts, agreements, and compliance to safeguard against legal pitfalls.

10. Post-Acquisition Strategy

Detail your strategy for the business post-acquisition. Consider how you will manage, grow, and potentially exit the business in the future, ensuring that it continues to align with your overarching business objectives.

Your Turn

You now know the best acquisition financing methods and how to write a business acquisition plan.

As you see, the process itself is veritably simple. The hard work begins when you start asking questions and contacting people. Then it comes down to risk assessment and staring down rejected loan applications.

You might even have to make a compromise in your plans.

Business acquisition funding is accessible, you just have to do your homework. Take a look at these investors for inspiration. Good luck.

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Jay Maverick

Acquisition Investors for
Small Businesses

We’re capital partners for entrepreneurs acquiring cool things.
Search funds, minority stake exits, and SBA deals. Let’s chat.

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